There is a danger in over-examining issues such as the housing market, rather than just rolling up sleeves and taking action

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Your Email *

Your Name *

Send To *

Enter multiple addresses on separate lines or separate them with commas.

Your Personal Message

By David Hargreaves

In reading the housing stocktake commissioned by the new Government I was reminded again and again of a very funny skit from an ages-old, largely forgotten, TV programme called The Frost Report.

I'm sorry, I cannot find it to link to, but in this satirical skit one John Cleese portrayed a 'newsreader' firing off a series of confronting and contentious questions about a mythical African nation that had just been granted independence. After getting to the end of this breathless and exhausting list of questions the 'newsreader' left us with: "All these questions need answering. Goodnight."

Like our intrepid 'Frost Report' newsreader, this housing stocktake report has dumped a load of big questions in our lap, and then left us to it.

Unquestionably there's a lot of interesting information in the report and the report's authors have acted to their brief from the Government - to provide a snapshot of where we are.

How helpful is it to have done this exercise as it is in the first place though?

Housing and Urban Development Minister Phil Twyford's reasoning in releasing the report was that in order to fix the problem you need to know exactly what the problem is.

But are you telling me he didn't have a reasonable idea already? He's had deep involvement in the housing portfolio for a number of years now.

I don't believe there would be one solitary, single piece of information contained in the report that truly came as a surprise to Twyford.

There is a danger in operating in this manner that the Government could overface itself with the perceived enormity of the task in front of it.

Or is that part of a strategy? Is this the incoming Government manipulating itself into a position from which it can drastically change the policy platform that enabled it to become part of a Government in the first place?

"Oh, we've assembled all the facts now and it's FAR worse than we thought, so we are going to change a load of the things we said we would do."

Let's take the more charitable view and say the Government is trying to assemble all the information in order to make sure the path it's taking is the right one.

But the issue is, there comes a stage at which you just have to roll up sleeves and get on with things.

Before this report came out I believed these (among many other) things:

New Zealand has not been building enough houses, particularly in Auckland.

The housing shortage has been worsened by the open-doors immigration policies of the previous Government.

New Zealand houses are expensive to build.

There is a problem in New Zealand's rental market, both with how the market is structured and with how renting is perceived by New Zealanders generally (IE very negatively).

Well, surprise, surprise, the report backs up all those things. I didn't need a report to tell me all that and I'm sure Twyford didn't either.

Here's what I want to see, I want to see the report that is crammed full of SOLUTIONS.

By simply gathering information of an essentially negative nature in front of it, such as via this report, the Government risks getting itself down and getting the people of New Zealand down. It is easy enough to overface yourself with a task - particularly if you just keep concentrating on how big the task is. And look, fixing our housing market is a big task that will take at least a generation.

I do agree that there is danger in simply assuming that you know how to fix something and charging off like Rambo looking for his jockstrap in what proves unwise endeavour. At least some of the previous Government's efforts, such as housing accords, would fall into this category.

But with or without reports being compiled and more and more information gathered, I think we could all agree that building more houses is good, having a check on immigration is good, trying to do something to make it more affordable to build houses is good, and doing something to improve the lot of renters is good.

The big danger is that simply gathering loads of information like this is just a substitute for the Great New Zealand Form A Committee strategy. Talking is easier than doing. There's no doubt about that.

Twyford's been talking big for a few years now. Well, this is his chance.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

81 Comments

I think the biggest problem is tax structure. Absence of capital gains tax highly skews the housing market. I find it surprising the many commentators don't want to talk about capital tax. I guess, most of the top notch people who can do anything about it have their hands in the cookie jar :)

The single biggest and easiest problem to fix is immigration, more by lax rules that allowed the wrong mix of immigrants. Yes we need some for specific need. On housing non residents should need to prove they personally occupy the property for a minimum annual period or sell up. To be blunt the rorting of policy to allow in 9000 cooks many of which we did not need if we needed any. Also previous allowing family reunion of aging parents that become a burden on pension and health.
Why we allow permanent residence without the need to become citizens within a reasonable period or depart again is neglectful.

Do so need cooks Mr BasilB
I could buy a lovely Indian dinner for mere $20 takeaway
Auckland really impresses with its range of restaurants too for a city of only 1.5 mill pop it’s amazing
Of course I will agree saturation point for cooks was probably reached a few years ago !

I think the biggest problem is tax structure. Absence of capital gains tax highly skews the housing market. I find it surprising the many commentators don't want to talk about capital tax. I guess, most of the top notch people who can do anything about it have their hands in the cookie jar :

What "you reckon" about the key drivers of the housing market cannot be empirically proven, therefore it's no more than a "I reckon". But what you are say about "cookie jars" is relevant, but it's a little different than you describe. Every decision that detracts from the status quo will cause opprobrium.

Why can it not be empirically proven?
There is a myriad of theoretical and empirical research on taxation and it's impacts on the decisional behavior of agents in housing markets.
The only limiting factor is the determination of people to apply it to the case of NZ - if you are familiar with the structure and incentives of academia, you'll understand why.

Political decisions might appear to look at the empirical facts but judgement often clouded by powerful self interest groups. In the US lately it was the massive taxcuts to appease the political donor class rich
I don’t think NZ is doing too bad at all compared to a few countries I won’t name
States & provinces everywhere fighting with other states & provinces ignoring federal decisions
NZs system is actually not bad for 5 Million pop even compared to much larger countries. NZ is loved worldwide

Sorry Nymad that was obtuse of me
I’m reading about Vancouver BC refusing to allow Alberta’s oil sands over the Rockies via a second new pipeline approved by the Canadian Federal govt & Alberta has just banned BC wine in retaliation
I won’t bother explaining similar conundrums here in the US
No I don’t believe States or Provinces should trump Federal government decisions

There is a myriad of theoretical and empirical research on taxation and it's impacts on the decisional behavior of agents in housing markets.

The only limiting factor is the determination of people to apply it to the case of NZ - if you are familiar with the structure and incentives of academia, you'll understand why.

Of course there is empirical research on taxation and its impacts on behavior, however feel free to show me what you think are the bext examples of empirical proof of how taxation warps house prices and their relevance to NZ. Look, I don't have an issue with the reality that NG and no capital gains influences behavior and house prices. What I am saying is that there is no empirical proof to the extent of its distortions.

Govts rely on the lack of empirical evidence related to their agendas and philosophical bends. They prefer people to make decisions based on their intuition and faith. Furthermore, as I alluded to, the reality is that those who are likely to be most affected by changes to taxation are also likely to be those who govts rely on for their support.

What I am saying is that there is no empirical proof to the extent of its distortions.
The author made no such claims about how much burden a (lack of) capital gains tax had on the market.

Kirdan Lees released a report last year on decomposing implicit taxation components of New Zealand house prices. I suggest you start there..Just Google it.

Treasury and RBNZ do internal research on elasticities in housing markets. If you contact them, they are normally happy to talk about their research work (given it's not sensitive and you have good credentials).

A "report" is not an "empirical proof", regardless if Kirdan Lees has a methodology over a "I reckon." Thirdly, price elasticities are not an "empirical proof" of how different variables influence behavior and the resulting impact on prices, but yes it would be interesting to contact RBNZ and ask about their methodologies for understanding behavioral models. I can guarantee that they won't be talking "empirical proofs" related to how taxation influences house prices nor do I expect they would have the resources to measure it. I would like to know why they don't use conjoint analysis, much like what is used in the commercial world to quantify drivers.

A "report" is not an "empirical proof", regardless if Kirdan Lees has a methodology over a "I reckon."
I suggest you read the report, then, and see what it's about and the methodology he used (not his, but attributed to some very smart American urban economists).

Thirdly, price elasticities are not an "empirical proof" of how different variables influence behavior and the resulting impact on prices
Price elasticities directly identify how tax will affect the market participant, though. That's my point.

how different variables influence behavior and the resulting impact on prices
It sounds like hedonics is what you are after, then. In which case you will find a lot of stuff on empirical proofs about the revealed preference for certain house price attributes.
The Chief Economist department for Auckland Council did some stuff on that recently. You should read their report.
Motu did one not so long ago, too.
Heaps of it out there. You just need to know what you are looking for.

I would like to know why they don't use conjoint analysis
They do - a lot of their expectations based data and income data is based on surveys.
When it comes down to real analysis, however, survey data is crappy. Like, really, really crappy data.
You do not waste your time building high end models if that's your source data. Especially when you can get the same revealed preference data from observed transactional data.

Reading all of the above, I think you don't understand what an "empirical proof" is. Furthermore, you cannot do a conjoint analysis without human interaction as it's all based on how people make trade-offs between decision variables so that you can understand the relative impact of each variable in their decision making process. Conjoint analysis is very relevant to behavioral economics and nudge theory. It is not in the realm of central banks. You can read here in layman terms.

How do I not understand empirics?
Didn't I just give you a list of research that provides empirical results? Ya know, the testing of observational data...

As for conjoint analysis, like I said, is entirely based on survey response. In the lab it works exceptionally well for obvious reasons. But seeing as you are so clued up on behavioural economics, you surely have read all about rationality and the limitations which apply relative to imperfect sampling, right. Also, the hedonic work I just mentioned highlights an empirical method of revealed preference/relative utility. I dont know why you would want to go experimental when you have observed data. And lots of it.

. But seeing as you are so clued up on behavioural economics, you surely have read all about rationality and the limitations which apply relative to imperfect sampling, right.

Conjoint analysis is based on how an individual makes preferences and trade offs over attributes. It's a rational process. Behavioral economics is based on irrational behavior. Defining a sample depends on your research design. All research is prone to sampling and non-sampling error. The idea is to minimize the error through robust design.

Also, the hedonic work I just mentioned highlights an empirical method of revealed preference/relative utility. I dont know why you would want to go experimental when you have observed data. And lots of it.

Because observed data gives does not reveal how people make decisions about buying houses based on taxation policy. There are a number of factors that apply to their decision and you need to measure these factors directly. It cannot be "observed." Observed or "transaction" data is irrelevant, unless you're basing your research on "gut feelings" or assumptions, which means the question of whether or not you have an empirical proof moot.

Copy and paste? There is no need. If there were an "empirical proof" that no capital gains influences buyer behavior by a factor of X, thereby driving house prices by Y, it would be good. There isn't. Similarly, you couldn't know how much prices would be influenced if there were a capital gains tax. A conjoint study would at least give you something to work from in testing the absence of or existence of a capital gains tax.

Because price elasticities tell you nothing about how different variables impact decisions. Conjoint can under different design simulations. Price elasticity gives you a very broad picture of what is happening to demand. It tells you nothing about the relative impact on the absence of or existence of taxation.

Because price elasticities tell you nothing about how different variables impact decisions
Isn't that exactly what they tell you in a hedonic context? Literally the process involves projecting Y onto a surface of observable characteristics in order to ascertain their relative influence.
There's heaps of stuff delving into utility theory based on hedonic analysis. Like I said, read up on it.

Getting fixated on arguing for some very basic marketing analysis tool as a primary tool for monetarists is a silly pursuit.

Yes, then for the Government to choose one or more that the electorate can judge and vote on. If they truly believe the country is behind them, make the bold moves and be judged on them when we all come to vote. It may likely end up as a one term government but at least they could say they tried.

stop filling the country up with people is the first solution.
Labour is still talking immigration numbers of 50,000 a year added to our births over deaths gain of about 28,000.
10,000 houses wont be enough to cover the continued population growth. Immigration needs a 10,000 people limit

They can't roll up their sleeves and get on with it because they are to stupid work out the first step involved.

At the end of the day one has to have some urgency to get jobs done.......deregulate and many thousands of houses will be built.......all those highly paid lay-about Council staff and BRANZ and MBIE....(who have I forgotten) would be relinquished from their roles to go building houses too...........a great big building boom......

Whatever Labour do will be more than the previous lot or Clarke's government.

This may be the cunning of this government, to whip even the National Party and supporters into a call for Government's major investment in housing. The politics in this country has moved to the left, even the Nats get votes for caring and sharing.

You mean we need a clearly leftie face on TVNZ? Considering how many ex TVNZ presenters are in Parliament with Labour and that we have a Green candidate on breakfast TV, I’d say they’ve already done their best to screw the media coverage to the left. I watch Mark on the AM Show. If he goes then there is no point watching TV at all.

Yes, sure thing, the networks are as poll driven as the politicians can be. They would chase the mood "out there" to chase ratings. Makes sense.

And don't pin ya hopes on Rigger! The producers will make a Chardonnay Socialist out him. Or he's dead weight. Jacinda changes everything. It's subtle, superficial and temporary, but that's bandwagon political swings for you.

And its not just housing - they have cancelled a number of Mental Health proposed pilot projects - and replaced them with an eight month long inquiry - which of course then takes a few months to work through the recommendations - start designing the services - put out for proposals - evaluate - and finally start to implement - in about 18 months time - Surely after 9 years they had some idea and plans ?

Surely over 100 days in we should have had some announcements about where and when the first few thousand new homes will be built ... and a least tenders issued for then ??

its one thing to fully understand the problems in order to develop a super duper perfect response - its another to start doing the obvious simplest things in advance preparation for these reports - cant go too far wrong by building three thousand homes straight away - if nothing else they can be rented to the private sector and free up existing housing stock for those in crisis!

Exactly, all we are witnessing now are signs of incompetent management which has / had no clue of what to do next , let alone have planned to do it before holding office .... as if getting elected caught them by surprise !! ... Cursing the darkness is the strategy, lighting candles is too hard, it seems.

As someone who has paid off their mortgage I realise the vast difference between being able to afford interest payments and actually paying off the principal. If the latter is not paid off then this is effectively pushing the costs onto my children and grandchildren.

The taxpayer. Who else? The unknown would be how many generations would pay it off.

Does that mean NZ is richer than Japan because our public debt is lower? They do owe it to themselves fortunately. And at least they have plenty of public housing and the world's most efficient public transport to show for it.

Very well put David Hargreaves ... most of us are sick and tired of reports, blame and promises - time to show us what this elected Gov can do and will do and if it can live up to its promises ..... so far it has hovering around the issue and action is needed to be seen soon.

PT should know all the issue surrounding the housing problems ... it has been his job for the last few years and you would have thought he had few solutions ready to fire once in the hot seat --- he still seems to be warming it up ATM and, so far, has nothing in his pistol but blanks !! .. and " but wait, there's more " bullets ...

Time to quote the famous physicist Heisenberg who observed the more you examine the less you are sure.
We are having a fairly bad attack of that here.
Well, it was the uncertainty principle but it applies at a macroecomomic level, dont try it on your credit card.

Let's get some numbers around PT's waffle:
To build 100K+ houses, at an increasing rate to cover a set-up phase, lets assume a build rate of 5/7/9 for the first 3 years then 11K a year for the next 7. 5+7+9+(7*11) = 98 - near enough.

Let's also take on board that excellent comment above - wipe the dopey TLA plans, the inspectorate, the BRANZ wallahs, contract out the inspections as per Queensland, let the real effects-based RMA run its course, sub in the Oz, EU, JIS or international standards for materials, and employ the thousands just released from their deadweight roles in Housing Manufacturies. Let a few dozen different Housing SweatshopsFlowers Bloom! (The latter should satisfy the hard left...)

Lease the land, rather than have FHB's Purchase it. End-runs the up-front cost to the FHB, which at Awkland plot prices, rules them out of the game before any house can be considered.

Them Factories, are gonna haveta churn out, between them, 23 houses per working day (220 in a year) the first year, 32 the next, 41 in the third, and 50 per day thereafter.

I have to say along with the general level of house price / building cost shock I experienced on my recent trip back to NZ I was deeply troubled by the $4.50ea Avocado price. I mean we grow them in NZ! Come on NZ I want some guac but not at $30 a bowl!

Driving into Whangarei you purchase Avocardoe from roadside stalls for $1 to $1.50 each. You go to the supermarket and they cost $4.00 each meanwhile across the isle are delicious drinking coconuts that have come all the way from Thailand at $4.50 each. It makes no sence.

I said that absence of capital gains tax highly distorts housing market. In response, many folks are asking for empirical proof. How about just use plain old "common sense". we all want minimize our taxes and therefore if housing investment allows it, so be it. why would you want to work elsewhere when you can accrue un-taxed gains by investing in houses. There are many cues that prove my point. For example, take a look at the increase in percentage of interest only loans, increase in number of times a house is sold in ten years, etc. etc. Now, the problem is collecting all this data is challenging for an ordinary citizen but government has access to all this data and that is why they pretend to do something about housing market. However, no one wants to alienate voters (property investors, real estate industry) and so they only want to focus on supply but not on demand. Anyway, we all have to look for our own interests. if I've invested in houses, i wanted prices to go up. who cares what happens to our NZ after this ponzi scheme crashes. Trust me, nothing lasts forever :)

Property Investors are already in full retreat and do already have capital gains obligations.
Tenants gain more power. WOF obligations loom. P damaged rentals are an epidemic. Tax incentives are already fully eroded.
The mum and dad investors who got into it in recent years aren't enjoying the reality that is property investing. Most of them won't last 5 yrs.
The cycle has already turned where previous govts encouraged private enterprise to be the countries landlords. We have turned the circle and are back to the govt having to do it.
You win already Family Guy, the govt is having to step back up and build 10's of thousands of rentals, Rental suburbs of low socio people for you the tax payer to accommodate. Good luck with that.

"However, no one wants to alienate voters (property investors, real estate industry)"...... Not too sure about that any more. Kiwibuild is a slow fuse bomb under 50 years of so-called Mum and dad investors. They are dieing out anyway as Baby boomers depart the earth. A few benefiting from inheritance from them is delusional. NZ INC can't survive on a landed gentry social model.

IMO there are loads of people who are keen to just wack something up, and stop nancying around with data.
Remember the farmer after the Kaikoura quakes who reckoned he could wack a road through with his dozer in a few days.
Engineering a solution is often sneered at. So many here in chch couldn't understand why roads took so long to fix. Hadn't thort about all the stuff under the road.
Housing is a big problem spanning 30 years , you cant wack up a solution based on anecdotal info. It might be right it might be wrong.

"Let's take the more charitable view and say the Government is trying to assemble all the information in order to make sure the path it's taking is the right one."

also I suspect its primarily a sell to the voter.

"But the issue is, there comes a stage at which you just have to roll up sleeves and get on with things."

Indeed but the solutions are going to be significantly financially painful for someone(s). I am willing to bet the Labour Govn will be "forced" to shoulder the costs of excess profits from land bankers for one ie the tax payer will pay. Either that or the Govn is going to have to confiscate large sections of land at a fraction of the price the land bankers will be expecting (is that even legally possible?) This is also then the first stage in the costs. The next is someone has to pay the significant cost for the roads, water and sewage systems. Here the Govn cant confiscate anything to save money, its simply a cost someone has to meet and have a nice day. Finally we get onto the actual building and the labour and materials costs sting especially in a constrained supply market.

So funny just posted similar comments on the other article on here and then read exactly the same sentiments above.I loved that old saying "Paralysis by Analysis" , I think Labour should use this instead of "Just do it"